TECH TRENDS-Made in China, Part Two

The North American advantage.

During a recent broadcast of CBS Evening News, a car commercial came on. As the automaker pledged its commitment to the American economy, a chrome-colored vehicle sped through scenes of industrial prowess: busy plant floors with welding sparks flying, engineers in lab coats holding clipboards and assembly lines staffed with proud workers. "We've invested over $1 billion in North America to create a car like you've never seen before," said the earnest voiceover. The automaker touted its new design and research center in California, its state-of-the-art production facilities in Alabama and Michigan and the thousands of new American jobs it had created. It wasn't GM or Ford. It was Hyundai Motor America, a subsidiary of the Hyundai Motor Company.

On May 20, the company cut the ribbons and opened a two-million-square-foot plant in Montgomery, Alabama. The facility has more than 2,000 team members on its payroll, with full benefits. The 64 suppliers that support its operations are expected to create 5,500 additional jobs across North America. Mark Stover, a former GM employee now working for Hyundai, gushed: "It's being a part of a younger company and not being so entrenched in tradition. Here, there's a new way of doing business and they're more open to innovation" ("Korea's Hyundai Opens New Plant in Alabama," AP).

Innovation? Isn't that supposed to be an American catchphrase? What's happening here? Is there something else—besides the $252.8 million in tax breaks from the local government—that has drawn the Asian automaker to the town of Rosa Parks and Hank Williams?

Hyundai Motor Company, the 38-year-old South Korean automaker, has established overseas R&D (research and design) centers in North America, Japan and Europe. Its manufacturing plants are dispersed among North America, India and China. It's no mystery that Japan and Europe, with affluent consumers and flourishing technology sectors, attract R&D investment from a foreign automaker trying to, in its own words, develop "products suited to the realities of each region." Nor is it surprising to see the company setting up production facilities in India and China, known for low-cost laborers. But North America, you'll notice, has drawn Hyundai investment for both R&D and manufacturing. It suggests something unique about this region's appeal.

The Technology Heritage

China, despite its voracious appetite for raw materials, is merely nibbling at computer-aided manufacturing technologies. According to Daratech (www.daratech.com), China's PLM market accounts for about 2.5% of the global PLM market in 2004 and is projected to represent 2.9% in 2005. According to Gartner Dataquest (www.gartner.com), China's mechanical applications market (CAD, CAM, CAE and PDM) represents 1.9% of the global market in 2003 and 2.3% in 2004. North America accounts for 32% of global spending for these products in 2004, and Europe 39%.

"China has only recently become a rising industrial superpower," Gartner analyst Laurie Balch notes, emphasizing recent. "On the other hand, North America and Europe have been manufacturing powerhouses for a long time. They have accumulated a tremendous amount of mechanical applications technology." PTC's (www.ptc.com) global product development strategy vice-president Anil Chitkara points out, "The U.S. and Western markets are fairly mature in digital technologies. They began implementing them in the 1980s." So what does this technology legacy mean? According to Daratech analyst Monica Schnitger, it means, "[North American manufacturers] have an advantage because many already have technology-literate employees, as well as a history of what technology changes work—and don't work—for their particular enterprise. Many also have experience in implementing large-scale IT projects and in making the cultural changes needed to gain the full benefit of the implementation." This contributes to North American manufacturers' ability to scrutinize, refine and streamline production processes using sophisticated methods, such as Six Sigma and lean manufacturing, both of which are fairly alien to overseas manufacturers.

Value-Added Manufacturing

MfgQuote (www.mfgquote.com) seems to have appeared right in time to fill a niche in the wake of intercontinental manufacturing activities. The company provides a platform where suppliers and buyers can intersect. One of its clients is CMF Industries, Inc. (www.cmfind.com), a "virtual" manufacturer. Its 5,000-square-foot facility in Kent, Washington, has no machine tools—no casting or molding operations, no assembly line, no packaging equipment. It matches customers who need to have something made with those who can make it for a competitive price and expected quality. Most virtual manufacturers are North American and European firms, for good reasons, observes Mitch Free, MfgQuote's CEO.

Headquartered in Atlanta, Georgia, MfgQuote provides a platform where virtual manufacturers can connect with overseas manufacturers and suppliers.

"What you get from China are parts produced according to your drawings," says Free. "But what the OEMs can get from suppliers in North America is the partnership to help them design that part for profitability, without features that are hard to produce. When a Chinese manufacturer ships an order to the U.S., if there's something wrong with the part, there's a real problem. Do they get someone to repair the part locally? Do they have to pay for everything to be shipped back to China to redo the part? What about the lead time it kills? Can the buyer accept the lost time? Because of these factors, they would much rather go through a U.S. company that can receive the part, inspect it, present to the customer and, if there are problems, act as an agent. That's the value North American manufacturers can add."

PLM, with built-in data-management and compliance-checking tools, can help manage the multidirectional global supply chain for virtual manufacturers, and that's where the North American enterprises have a head start. Daratech's Schnitger says, "PLM is not an easy technology. It's not a matter of taking a piece of software out of the box. You need to tie all the worksites and software and people together. I think that's experience many Chinese manufacturers perhaps don't have yet."

A Fertile Ground for Innovation

It's no coincidence that North America claims credit for Bryan Nesbitt's PT Cruiser, Dean Kamen's Segway and Apple's iPod. There are aspects of North America that inherently encourage creativity. Daratech's Schnitger singles out the venture capitalist culture. PTC's Chitkara points to the entrepreneurial culture and the can-do attitude. "I'm not saying other countries cannot develop them," Chitkara says, "but these have been part of the U.S. business culture for so long that these are strengths they can rely on." For more information, see "Entrepreneurship and Innovation in China: Are They Possible?" by Amy Rowell on Innovate Forum at www.innovateforum.com.

Innovation is also linked to IP (intellectual property) protection. It doesn't give a person too much incentive to toil over an engineering problem and come up with a creative solution if others can simply steal it and profit from it the day after its discovery. Gartner's Balch says, "Innovation in manufacturing companies is important across the board. It can apply to doing something inventive in the design phase or the manufacturing phase, doing something creative in the distribution or the supply chain—something unique that you can patent or otherwise protect." Whereas North America's copyright laws and patents offer a significant measure of protection against idea poaching, China is only beginning to address the problem.

Only A Matter of Time

During "The China Factor: How to Realize Your China Vision," a Webcast hosted by IndustryWeek (www.industryweek.com), presenter George Koo, director of U.S. Chinese Services Group at Deloitte & Touche, fielded a question about lean manufacturing in China. He said, "[China] is constantly changing. So they might not know anything about lean [manufacturing] yesterday, today they are getting interested in it, tomorrow they may be practicing it." One can say the same thing about PLM or IP protection in China. It's only a matter of time before China, with a rapidly multiplying population of engineering graduates, becomes a technology leader. And Chinese manufacturers that interact daily with global clients will eventually take on their North American counterparts' characteristics. Today, Hyundai sees fit to open an R&D center in California, but how far behind is its Shanghai R&D center?

On Thanksgiving, I will be dining on turkey chow mein, the outcome of my Asian American family's attempt to combine Chinese cuisine with the Pilgrims' meal. Is it innovation? I'm not sure, but the recipe is not patented, so you're welcome to it.

About the Author: Kenneth Wong

In her easy-to-follow, friendly style, long-time Cadalyst contributing editor and Autodesk Technical Evangelist Lynn Allen guides you through a new feature or time-saving trick in every episode of her popular AutoCAD video tips. Subscribe to the free Cadalyst Video Picks newsletter and we'll notify you every time a new video tip is published. All exclusively from Cadalyst!